Donna L. Knisley (Formerly Bell) as for the Estate of Louis R. Bell v. United States

Decedent Louis Bell was the husband of appellant, Donna Knisley, who brought this suit on behalf of Bell’s estate. In 1978 or 1979, they sought a business loan from SeaFirst Bank. The bank agreed to the loan on the condition that Bell would take out a $400,000 term policy insuring his life. Bell applied for the policy in his own name, and named his estate as the beneficiary. However, shortly after the issuance of the policy, Bell decided for tax reasons to name his wife, Knisley, as the policy’s owner and beneficiary. On April 10, 1980, Bell executed a document disclaiming any interest in the policy or its proceeds. He also gave Knisley, as a gift, “$351.32, being the first four months’ premiums” due on the policy, and declared that his interest in any community property funds used by Knisley to pay premiums was to be considered an inter vivos gift to her. All premiums up to and including October 1980 were then drawn from their joint account, which was owned by them as community property.

Bell died on October 29, 1980, less than a year after the insurance policy was issued, and Donna received $405,683.20 of life insurance proceeds. After the IRS determined that one-half of the…